Arbitrage Defined

Arbitrage is a hot topic these days. American Heritage Dictionary defines arbitrage as “The purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy.”

A YouTube video titled Adwords Abuse which was uploaded back in April has begun re-circulating. The video highlights some of the issues surrounding arbitrage but it only discusses one form of the problem. Arbitrage is not a one size fits all practice.

So letâ€™s look at the different types of arbitrage.

PPC / Adsense Arbitrage 1.0
A website or web page which contains no content. The page is filled with PPC ads such as Adsense or Yahoo Search Partner Ads. This is the most blatant form of Arbitrage and the one the majority of people are talking about.

Arbitrage 2.0
A web page that contains some form of content but whoâ€™s true purpose is to generate clicks on the ads within the page. These ads are mostly Adsense with some YPN Ads mixed in. They are Made For Adsense (MFA) sites relying on PPC traffic instead of organic.

Shopping Engine Arbitrage
A web page that lists product prices enabling customers to see the same product priced at multiple stores. They then send the consumer to the merchantâ€™s product pages via PPC links or affiliate links.

Affiliate Arbitrage
Affiliate marketing is a form of CPA arbitrage. The landing page for the affiliate marketer is designed to cause some form of action which the marketer getâ€™s paid for whether it happens directly on the landing page or happens when the consumer clicks through to the merchants website.

User Experience
So what does all this mean? Arbitrage isnâ€™t going anywhere. It has always existed and it always will in some form or another. That said, Google, Yahoo & MSN need to get a handle on the situation and enforce the rules they have already set out. All three are explicit that landing pages should contain relevant and meaningful content.

It’s up for debate how shopping, affiliate, and version 2.0 arbitrage fall within these guidelines. How on the other hand they have not already started banning arbitrage 1.0 sites just blows my mind. I get the feeling they are afraid to lose the revenue. What they fail to realize is the work around has already been invented. As soon as all the arbitrage 1.0 sites are banned, arbitrage 2.0 sites will just pop up in their place. If any money is lost, it will only be for the short term.

So what then is accomplished? A better user experience. While MFA sites appearing in the sponsored results may not be the perfect solution, it is still 10 times better than then arbitrage 1.0 junk that is appearing now.

http://www.caydel.com Caydel

Insightful post Andy – while I’ve seen all these before, AFAIK nobody has taken the time to break them down into types like this.

http://www.marketingpilgrim.com Andy Beal

Cool, glad you like it – credit goes to new contributor, Jeremy Luebke!

http://www.caydel.com Caydel

My apologies to Jeremy – I had assumed Andy wrote the piece.

Well written, Jeremy!

http://www.xuru.com Jeremy Luebke

Thanks, I’m glad you liked it. I could write about different Arbitrage topics all day. The gray areas of SEO and PPC is where all the fun is.

http://www.admoolah.com Toivo Lainevool

You forgot one category, legitimate, useful sites that use arbitrage to supplement the income they get from organic traffic.

http://www.caydel.com Caydel

Jeremy – go for it! I’ll happily read and learn about arbitrage all day if I can

http://www.lonelymarketer.wordpress.com Patrick Schaber

Jeremy – you nailed it on the head – they’re afraid to lose the revenue. At the company I work for we recently discovered someone bought a url of the misspelling of our company name. They put up a website of basically AdSense – of which our PPC ad was appearing. When I asked my Google Rep about it she said they can isolate the AdSense sites with no content and not show my ads on them. If that’s the case, why can’t they eliminate showing ads there period? There is no relevant content.

Nice post, succinct definitions, thanks. It surprises me that Google hasn’t led the way and taken more steps to discourage these practices – it kinda fits with their ‘style’. They must have an idea of how much revenue is generated from these sorts of sites and it must be a tonne.

I guess the average joe searcher doesn’t appreciate the issues as well as we do or has the power as an individual to diminish their revenue. So in fact, what are the benefits to Google for cracking down on arbitrage?

http://www.xuru.com Jeremy Luebke

The benefit of cracking down? To make sure the end user doesn’t lose confidence in ads. Even end users will only click on crap until for so long they get fed up and completely ignore every ad Google serves up.

Publishers will also move on to other revenue streams since their users no longer click on adsense ads because the users are trained to expect crap on the other end.

http://franktank.com Frank

Thats a good point, clicking on ads only to get more ads is really annoying. I don’t know at what point I am going to alter my behaviour though, those cunning arbitragers can probably write awfully good ads and theres always a sucker or two out there like me.

Once search engines’ revenue from ads decreases I guess they’ll make changes, but I would say that would come quicker due to competition from other ad companies than from changes in user behaviour?

We talk in terms of ‘cracking down’ and ‘banning’ but really the problem is more with the arbitrage 1.0 style sites. The others can significantly be seen as credible advertising when in the context of a site with a clear business model such as price comparison or a large useful content site.

Equally informational sites such as About.com or Wikipedia can only very harshly be viewed as mfa, do not informational sites reserve the right to recoup their costs via their advertisements.

It is wrong to refer to these sites as a problem, refer to them as ‘the situation’. I feel arbitrage 1.0 is where anyone other than the lead generators will feel put out if they go but arbi 2.0 and the more sophisticated examples listed here will stay for good. Essentally these are the contextual sites or those that provide a useful service, as long as their content is not scraped then its very hard to argue they do not provide good user experience no matter what a user clicks on.

As for the arbitrage 1.0 sites, well the largest sites on the web are doing it, I have spied Excite, Ask.com and Yahoo on Adwords alone pushing their very own links so what kind of message does that really send out? The author is also correct, ban arbitrage 1.0 and it will just evolve and there will be no way to distinguish real content pages from the clever mfa pages that will spring up in their place. In any event evolving mfa will eventually turn into the very thing the engines want, unique content and experience.

The current climate threatens legitimate content sites that want to run ads to recoup PPC costs as they risk getting hit in what ever new algos or policies may come along.

Arbitrage 2.0 … anybody with comments on exactly how it works? If the strategy does not rely on organic search engine traffic to then monetize with adsense / yahoo ads, then it must use PPC to get the traffic that is then monetized. Buy low — sell high. I get the sell high part (adsense) but curious about the buy low part–buy from ask.com / msn.com then sell through adsense? Any thoughts?